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Your filters MERV Rating is a good way to help judge the effectiveness of the filter. MERV means Minimum Efficiency Reporting Value which was developed by the American Society of Heating, Refrigeration and Air Conditioner Engineers - ASHRAE. MERV values vary from 1 to 16. The higher the MERV value is the value the more efficient the filter will be in trapping airborne particles. Another consideration is air flow through the your HVAC system. Leaving a dirty air filter in place or using a filter that is too restrictive may result in low air flow and possibly cause the system to malfunction.
ASHRAE recommends MERV 6 or higher
US Department of Energy recommends MERV 13
LEED recommends MERV 8 at a minimum
(Source of the above: http://www.flowezyfilters.com/image_...ing%20mean.pdf)

Your HVAC System is designed to work as a complete system, you need proper air flow over your evap coil to get proper delta T, you need proper air flow over you heat exchanger to get proper temp rise, you need proper air flow to each room to heat or cool the space effectively, you need proper return pressure and supply pressure, what I am trying to get at is the system is designed as a whole, if you add or remove a part it will change the whole performance. The blower in a residential air handler/furnace can usually overcome .5 inch of static pressure, thats divided by the return air static and the supply. Every accessory in the system adds a pressure drop (PD), the evap adds x amount of PD, The heat exchanger adds x PD, the filter adds x PD every 90 degree in the duct and so on, but as long as the designer allowed for all these pressure drops and the system was balanced properly and is working with-in the design specs then its all good. But as soon as you want to replace your 1inch merv 5-8 filter with a merv 12- 16 then it throws everything off in the system, thats why when people want to install air cleaners in the system they put them in a bypass loop and they usually have booster fans in them, so they are drawing air from the return air duct into the air cleaner where it goes through a pre-filter which takes out large particulate, then goes through a High Efficiency particulate Arresting filter (HEPA) then it goes through an optional activated charcoal filter which helps remove Volatile Organic Compounds (VOC's) Then it is put back to the supply air duct bypassing the air handler. This system doesn't clean all the air at once but over time it will clean the majority of the air. People also think when they install these relatively expensive system that they will not have to dust their homes, well these filters can only trap airborne pollutants they do not come with a swiffer attachment lol. Another important component that is highly over looked is fresh air, people seal themselves in their homes and keep breathing the same air over and over, that air is CO2 rich O2 poor, Skin particles high and much more, if you have allergies I highly recommend you get a Heat recovery ventilator (HRV) brings fresh air into your home and removes stale air out and there is a chamber that recovers and hot or cool air from you home and tempers the fresh air coming in so you are not wasting as much energy. here are some links that you can also read up on. Like I said there are many options. http://www.mechreps.com/PDF/Merv_Rating_Chart.pdfhttp://www.lennox.com/products/indoo...-systems/HEPA/http://www.negairmachines.com/pdf/facts-hepa.pdf

Thanks for responding. I can see how spending 2000 dollars would help the situation but right now I am asking about the maximum MERV rating filter my air handler can use. The filter in there may not be the right one as I just bought this house from foreclosure.

We can't say without evaluating the system. Most duct systems are undersized so the cheap fiberglass filters are all you should use. 99% of duct systems cannot handle the restrictive filtrete filters 3m sells. What size is your system? What size is the filter grill and what size is the return duct?

If you're return grille was changed or another one added to accomodate a high merv filter go ahead, but as it sits it is not large enough for any filter therefore you need the least restrictive (lowest merv rating) filter available and change it every 20-30 days. With the slack return air you will have premature failure of main components (compressor, heat exchanger, blower motors ect)